Insurance officials hope federal waiver will cover reinsurance costs

Insurance officials for the state and Premera Blue Cross Blue Shield of Alaska are hopeful that Health and Human Services Secretary Tom Price will grant a waiver to the Affordable Care Act that would allow for the federal treasury to cover a state reinsurance program created last year for the members of the individual market who fall into a small high risk pool. (Photo/J. Scott Applewhite/AP)

State officials and insurance companies in Alaska say they are encouraged by positive receptions so far from President Donald Trump’s administration on an application for federally-backed health “reinsurance” program for individual health insurance policies sold in the state that have been hit hard with losses.

If the proposal is accepted, federal funds could replace a $55 million, one-year backstop put in place by the state in 2016, in House Bill 367, to prop up the individual health insurance market. The funding expires at the end of this year.

Trump administration officials are interested in Alaska’s reinsurance program, and want to nurture it, because it represents the kind of state-led innovations in health care the new administration wants to encourage, Alaska Insurance Division Director Lori Wing-Heier said.

This assumes that the basic structure of the federal Affordable Care Act remains intact, with health insurance subsidies paid through “metallic” plans offered on insurance exchanges.

It appears for now that the ACA will continue roughly in its present form, although Republicans in the U.S. House and Trump have renewed a push for a repeal and replacement of the ACA with something structurally different.

For now, however, the Alaska experiment in reinsurance is being watched closely by the new federal administration and by several states including western states with small, dispersed populations like Alaska’s, with similar problems with affordable health care.

However, Minnesota and Iowa are also watching Alaska closely, Wing-Heier said.

Jim Grazko, president of Premera Blue Cross Blue Shield of Alaska, said in a March 30 interview with the Journal that, “Alaska is developing a reputation for innovations. No other state has the small population and very small insurance pools like Alaska. There’s also an urgency here in tackling the problem, that hasn’t been felt elsewhere.”

“A lot of states are watching Alaska.”

Premera is now the sole insurer in the individual health insurance market after Moda Health was briefly suspended from operating before it departed last year citing financial losses. In 2014 before the ACA went into effect, Alaska had five companies in the individual market.

Last year the state faced an emergency with the individual health insurance market with Moda’s impending exit and a possible 42 percent rate hike on the table from Premera, and the state administration and Legislature acted fast to create a temporary backstop by using assessments collected from every policy sold in the state.

Alaska has had reinsurance for years, a subsidy for health insurance coverage for individuals with serious medical problems who couldn’t get coverage, under the state-created Alaska Comprehensive Health Insurance Association, or ACHIA.

Insurance companies who sold health policies in Alaska paid fees to the association for the high-risk premium subsidies.

Individuals with those policies contributed to the premium, and it wasn’t cheap for them, but coverage was at least available.

When the Affordable Care Act passed, insurance companies could no longer deny coverage because of preexisting conditions.

Most of the Alaskans in the ACHIA program — there were several hundred — dropped it and signed up in the newly-created individual insurance exchange, taking their serious medical problems with them.

The Alaska individual insurance market, which numbered about 20,000 last year (it has since dropped to about 18,000) wasn’t big enough to absorb the costs, however. Washington state’s individual market numbers about 300,000 in comparison.

Events last year coincided with two insurers pulling out of the Alaska health individual insurance market, Moda Health and Aetna, leaving Premera Blue Cross/Blue Shield as the sole company remaining selling individual policies.

“We were the last guys left standing,” Grazko said.

The result was predictable – huge losses for Premera. Grazko said his company has posted a $7.7 million in losses in the Alaska individual market over three years.

The company lost $25 million in 2014 and 2015 but did have an $18 million profit in 2016, which reduced the three-year loss total and triggered an examination of the company’s financials.

In a statement, Alaska’s Division of Insurance said 2016 profit may have been boosted due to delayed payments under the ACA’s risk transfer programs for 2014 and 2015 that were delayed, and showed up in 2016 in the company’s books.

Adjusting for that, Premera’s profit and administration expenses show nothing unusual for 2016, the division said in its statement.

State officials are still inspecting Premera’s three-year financial reports to verify information the company made available, insurance division director Wing-Heier said. By law, the Insurance Division must ensure companies’ returns are adequate but not excessive, she said.

The losses projected last year, however, were enough that Premera initially filed a rate request for a 42 percent premium increase in the individual market, which prompted the state to step in with its reinsurance.

That allowed the company to lower its 2017 rate increase to 7.5 percent. Grazko said the actuaries who crafted the revised rate anticipated fully drawing the $55 million available in the reinsurance program.

What the state did, Grazko said, basically was to “repurpose” ACHIA by extending it to cover costly medical problems among people in the individual market, mostly those who had migrated from the former reinsurance program.

The differences were that the new subsidy was paid through a fee on all insurance sold in Alaska, property and casualty included, rather just on health insurance policies as was previously the case.

Also, the program was organized to pay costs for 33 specific high-cost medical procedures rather than costs experienced by individuals. The Legislature authorized the program at a $55 million funding level, which was the amount of losses for the high-risk people estimated at the time.

Although this did not involve state general funds, the Legislature must still authorize state program expenditures even if paid for by others.

How this is actually working out in 2017 won’t be known for a while, Grazko said in the Journal interview.

Premera operates on a calendar year (compared with the state’s July-to-June fiscal year) and was only able to start drawing funds, paid by the fees, on Jan. 1, he said.

It’s still too early to know what the costs will actually be for 2017, whether the $55 million authorization by the Legislature will be enough, or if the expenses don’t reach $55 million whether some of the authorization can be rolled in 2018.

That means, however, that Premera will have to file a proposed individual insurance rate for 2018, due in May, based on just a few months of actual data.

Also, it will likely still be unknown at that time whether the federal government can step in under the state waiver application. Based on that, Premera’s initial rate filing may cause some sticker-shock for Alaskans with individual health policies.

Grazko said the 2018 premium filing can be revised later in the year when it becomes known what the federal government will do on the state’s waiver application.

Meanwhile, Wing-Heier expects the waiver application to be approved, based on comments so far from the U.S. Department of Health and Human Services.

The state does have to enact a statute change to comply with the federal waiver requirements, mainly in making contingency state appropriations multi-year. Those changes are now in a section of the state operating budget which is pending in the Legislature but it sure to ultimately be enacted.

“The application (for the waiver) was filed on Jan. 3. We received notification that the waiver application has been deemed complete on Jan. 17. Secretary (Tom) Price issued a letter acknowledging our waiver and reinsurance program,” Wing-Heier wrote in an email.

The waiver application totaled 183 pages and included an analysis by the University of Alaska Anchorage’s Institute of Social and Economic Research that the federally-backed reinsurance appropriation would be “budget neutral,” or not resulting in added costs to the treasury that would not otherwise occur.

“Once the state budget is passed (with the required language) we expect that CMS (federal Centers for Medicare and Medicaid Service) will approve our waiver rather quickly,” she said.

Even with federal backing the state would have to provide some general fund support, however. That would be $11 million in fiscal year 2018 and increasing gradually to $14.1 million in fiscal year 2022, according the information given to the Legislature’s finance committees by the Insurance Division.

Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at timbradner@gmail.com.